WASHINGTON – A record-high oil import bill widened the U.S. trade deficit sharply in March, the government said on Tuesday, a factor economists said could weigh on U.S. economic growth and pressure the dollar.
Fears about the possibility of supply disruptions boosted oil prices ahead of the war in Iraq. The result was a record $9.1 billion crude petroleum import bill in March and a record $6.5 billion in imports from OPEC nations.
The Commerce Department (search) said the rise in oil imports, coupled with a drop in civilian aircraft exports, pushed the March trade gap to $43.5 billion — the second-highest on record and an increase of 7.6 percent from February.
Analysts said the higher-than-expected figure could force the Commerce Department to trim its estimate of first-quarter growth from the 1.6 percent annual rate reported last month and would increase pressure on the dollar, which has been on a downward slide in currency markets for more than a year.
"When you see a trade deficit like this, it basically tells you there's going to be a little bit more weakness in the overall economy," said Banc One chief economist Anthony Chan.
The huge trade gulf will hurt the dollar and then, over time, the dollar's fall will boost U.S. exports, trimming the trade deficit, Chan said.
But for now, stronger growth at home than in the rest of world is continuing to widen the trade gap, he said.
U.S. Treasury Secretary John Snow (search), along with other Bush administration officials, have held fast to the mantra that a strong currency is in America's best interests.
But he also acknowledged in a television appearance over the weekend that the currency's fall has helped exporters, a comment that has some traders questioning the depth of the administration's commitment to the policy.
Imports Near Record
Buoyed by the higher oil prices, U.S. imports in March hit $126.30 billion, second only to the record set in September 2000 of $126.33 billion.
However, U.S. exports were only fractionally higher at $82.8 billion, as anemic overseas growth kept a lid on demand.
Jim Glassman, senior economist at J.P. Morgan, said he was doubtful the lower dollar would have much long-term impact on the trade gap because of the sharp differences in economic growth around the world.
"The only way that the U.S. trade deficit is going to stabilize and reverse some will be the when global economy begins to boom and everybody else starts growing faster than the U.S.," Glassman said. "We may see it in our lifetime, but I'm not holding my breath."
Still, many economists worry the huge trade deficit poses a long-term risk to the U.S. economy, which could cause the dollar to crash instead of declining at a measured pace.
"I don't know how long we can maintain this type of red ink, year after year, decade after decade, without causing substantial damage to the dollar and to the economy," said Sung Won Sohn, chief economist at Wells Fargo.
On Monday, Commerce Undersecretary for Economic Affairs Kathleen Cooper provided more fuel to trader skepticism about U.S. dollar policy by noting the U.S. economic recovery would have have been stronger without the huge trade deficit.
"When the administration talks about the strong dollar, it's kind of like saying they're for motherhood and apple pie," Sohn said. "They're very careful to avoid saying what they mean by a strong dollar."
Imports from Western Europe hit record levels in March, even as France and Germany strongly opposed U.S. efforts in the United Nations to win a second resolution authorizing the use of force against Iraq. U.S exports to Western Europe were the highest since May 2001.
Strained relations over the war have triggered threats of consumer boycotts on both sides of the Atlantic. But much U.S.-European trade is internal company trade, lessening the impact boycotts could have on the overall trade figures.
The March trade deficit with Mexico was a record $3.9 billion, while the deficit with Canada was the highest since January 2001.